Course Description

This presentation involves the shift from historical reporting to predictive costing such as capacity-sensitive driver-based rolling financial forecasts, what-if analysis, marginal cost analysis (e.g., pricing) and target costing for new products and services.

The annual budgeting process is being criticized as obsolete soon after it is published, prone to gamesmanship, cumbersome to consolidate cost center spreadsheets, not being volume sensitive, and disconnected from the strategy. The challenge is how to resolve these deficiencies. It can be done through driver-based expense projections also useful for decision analysis.

The annual budget is often perceived as a fiscal exercise done by the accountants that is: (1) disconnected from the executive team’s strategy, and (2) does not adequately reflect future volume drivers. The budget exercise is often scorned as being obsolete soon after it is produced, and biased toward politically muscled managers who know how to overstate and “pad” their budget request. To complicate matters, traditional budgets are typically incremented or decremented by a small percent change from each cost center’s prior year’s spending level. This “use it or lose it” behavior by managers in the last few months of the fiscal year unnecessarily pumps up their prior year’s costs and consequently confuses analysis of who really needs how much budget in the coming year. 

Today organizations are shifting to rolling financial forecasts, but these projections may include similarly flawed assumptions that produce the same sarcasm about the annual budgeting process. 

This presentation provides a solution to poor budgeting and rolling financial forecast methods.

Learning Objectives

• Identify the deficiencies with the traditional annual budget
• Discover how to apply unit-level consumption rates with forecasts to project operational expenses.
• Recognize how to include strategic and risk mitigation projects in expense projections.
• Identify how to apply “predictive accounting” for capacity-sensitive driver-based rolling financial forecasts, what-if analysis, and outsourcing decisions.
• Discover how to shift from bottom-up cost center consolidations to top down modeling

Prerequisites

• None

Who Should Attend

CPAs, accounting/finance professionals who work with budgets and forecasts.